MONTREAL — A man who won the Nobel Peace Prize for helping poor entrepreneurs around the world says he’d love to see his microfinancing ideas implemented in Canada.
“We’d be delighted to do that if we’re invited to do it,” Muhammad Yunus said of establishing one of his Grameen Bank branches in Canada.
The institution helps people with limited access to credit. Proponents say it could help struggling Canadians —including newcomers and members of aboriginal communities.
“I’ve met a lot of First Nations leaders and I’ve always felt this is something that can be done quite easily,” Yunus said on a recent visit to Montreal.
His first branch, founded in Bangladesh in 1983, now boasts 8.3 million members. It has provided a total of $9.7 billion in microloans, primarily to women, for businesses ranging from furniture-making to farming.
But establishing a traditional Grameen Bank in Canada faces particular hurdles.
“One of the big challenges in Canada is the regulatory environment, in terms of savings for example,” said Gord Cunningham, interim director of the Coady International Institute at St. Francis Xavier University in Antigonish, N.S.
“This is a highly regulated environment. It’s not even that easy to establish a credit union anymore even though they started out at kitchen tables.”
In Canada, the experience has been more with microcredit — small loans — rather than microfinance.
In the developing world, the loan money comes from savings. But that’s not possible in North America, so where to find the capital and how to make it a break-even venture remain question marks, Cunningham said.
“For a financial institution to provide very small loans for people at the kind of interest rates they are able to charge, it’s very hard to cover their costs,” Cunningham said, adding people are often told to use a credit card.
Several attempts have been made to establish microloan models in Canada, but most have not lasted. In the most famous, The Calmeadow Foundation tested a peer-lending model in Nova Scotia, Toronto and Vancouver during the 1990s, but it ultimately proved to be unsustainable in the long run.
“A lot of folks have tried that in the North American market and it’s just hard to get enough of a spread on these small loans to cover the operating costs, the financial cost, the capital,” Cunningham said.
“There is a market out there but how to do it in a way that can be cost-effective for the institution trying to provide the credit is the real challenge.”
The Vancity Credit Union, one of the institutions that picked up Calmeadow’s clients, has an active and successful microfinance program.
“There’s no doubt — that’s a huge, huge need,” said Catherine Ludgate, community investment manager at Vancity.
Plenty take advantage, including many newcomers to Canada who often arrive with no credit, no ability to borrow and no access to traditional banking services.
“They have no way into our banking system because they don’t have a credit bureau we understand,” Ludgate said.
“Just to repay a small loan and build a credit bureau. For many folks, it’s the pathway to becoming bankable in Canada.”
Some people have faced a life disaster and need to re-establish credit, and a small microfinance loan can help rehabilitate a credit history.
But Ludgate cautioned one has to be careful with character-based lending.
“It’s much harder to lend someone $1,000 than it is $1,000,000,” Ludgate said.
“We have to test to make sure it’s the right thing to do and it won’t put them in a more vulnerable position than they’re already in.”
The other problem is geographical. A successful lending model requires strong community ties, peer-monitoring and pressure to ensure loan payments are made promptly.
By comparison, most Canadians are more spread out and tend to travel.
“My experience is that it doesn’t work that well generally (in Canada),” said Ludgate.
“It can work when you can identify a population of people that have strong bond of affinity together.”
Ludgate said credit unions should play a big role in establishing this kind of lending.
“The solution to meeting microfinance needs is for the credit union family to do this,” she said.
Yunus believes there is a future for Grameen in Canada, which has a microcredit history.
“There were many microfinance programs that I used to know in the past but some of them died away, didn’t expand,” Yunus said.
“But we can give it a new start. The issue remains because many people don’t qualify to take a bank loan here so they are in the hands of pay-day loans and other kinds of people who would fill that gap.”
Yunus said the North American Grameen model is already in place.
Grameen America has locations in New York City and Omaha and is expanding to San Francisco and Indianapolis.
Grameen America calls itself a not-for-profit microfinance institution and provides loans to entrepreneurs — almost all women.
Since January 2008, Grameen America has loaned more than $9 million in microloans to 4,000-plus micro-entrepreneurs.